• Chris Stein, CFP®

Do Earnings After Claiming Social Security Matter?

We received the following question this past week that many of you will find interesting:

“I am 65 years old right now and plan to claim my Social Security retirement benefit later this year when I turn 66 (my full retirement age).  When I check my SS benefits statement, it estimates my benefit to be right about $1,500 per month.  I plan to keep working until I do not find my job fun anymore.  To see how future earnings might affect my SS benefit I have used a few online calculators where I can put in my earnings history, as well as my future anticipated earnings, to predict my benefit.  It seems to not matter whether I put in $0, $20,000 or $30,000 for my future earnings; because when I do, the calculators do not change my benefit estimate.  Does this mean working after I claim my benefit has no effect on my benefit?”

Earnings History

Your entire earnings history (from birth) is actually considered when determining your benefit.  This includes money earned after you claim your benefits from Social Security.  Many people are under the false impression that just your past 5, 10 or 35 years is considered, but this is not true.

When the SSA determines your benefit, they look at your ENTIRE earnings history.  However, they do adjust for wage inflation and restate each year’s earnings as “current” dollar values.  Technically, they adjust everything to earnings dollars as of the year you are age 60.  All years of earnings prior to age 60 are adjusted to reflect wage inflation of the years.  The SSA then picks the HIGHEST 35 years of these “indexed” earnings, and uses those 35 data points to determine your retirement benefit.

Recalculates Your Benefit

Each year the SSA recalculates your benefit to include any more reported earnings, whether or not you have claimed your benefits.  If one of these new year’s earnings are high enough to replace one of the previously used 35 the SSA will increase your benefit to reflect this change.

In your example the entry of $0, $20,000 or $30,000 does not change your benefit for one of two reasons.  The calculator you are using may not be programmed properly, or the more likely case is that the $30,000 figure in today’s dollars is not large enough to replace on of your previously used 35 years.

Additional Earnings and Your Benefit

After age 62, additional earnings can only increase your benefit, they cannot cause the benefit to reduce.  If your future anticipated earnings are not large enough to replace a lower year previously used in your benefit calculation then your benefit will remain unchanged.  If you go back to the calculator you are using and enter a much larger future estimate, you will see a benefit estimate that is higher, assuming the calculator is programmed properly.

Check Your SS Earnings Record

We get similar questions all the time as people partially retire and go part time.  Sometimes they are continuing to work and pay into SS to try to increase their benefit.  However if you are like the author of this question and already have 35 years of earnings better than you are earning in your current part-time work, you will be working and paying into SS but receiving no increase in your benefit.  Therefore, make sure that if you continue to work into your 60s and 70s (or beyond) with the main intent to increase your SS benefit, that you have checked your earnings record to determine if this additional work will actually make a difference.

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